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The ABC of Binary Options Trading

The ABC of Binary Options (Start Learning Binary Options Here) Binary Options are also called Digital Options. They are financial instruments that unlike other assets have a predetermined fixed return that every trader knows before entering the trade. This makes trading them easier than any other trading instrument in the world. A trader will earn the payout of the option, assuming the option {expires} {in-the-money}.

Above-Below Options as seen at OptionXP.com

However, if the option expires {out of the money}, the trader will lose a predetermined amount of his initial investment in the option. Many traders maybe familiar with {vanilla options} or {Call and Put Options}, but unlike this brand of options, at expiry it does not matter how far in or out of the money the market is. This makes trading Binary Options a fantastically easier to understand.

The other great idea behind Binary Options is the ability to trade almost any underlying asset in the world in any market. You can trade such varied markets as {forex}, {commodities}, {stocks}, and even {stock indices}. The actual products you trade are up to you. You can trade {EUR/USD} or the {Dow Jones} index or even Google. Other key difference between Binary Options and traditional options is the issue of price and time. Traditional options require you to wait a significant amount of time in order to reach expiry, sometimes even months, making the trader vulnerable to fluctuations in the market that are impossible to assess when opening a trade. Binary Options can have varied expiries and it’s up to the trader to decide how long to wait. Typical expiries in Binary Options are 1 month, 1 day, 1 hour or as low as 5 minutes.

Depending on your trading style, you can find yourself in and out of trades in a matter of minutes. Traditional Options simply aren’t this flexible. You decide how much to risk and this provides a great level of control. An example of a trade: After reading an analysis, you see an opportunity in the {GOLD} market. Gold is currently trading at $1501 and you think it can go as high as $1550 due to geo-political turmoil. All you need to do now is log into your broker account and check the {payout %} for a Call Option on Gold.

“Call” is another word used to indicate “BUY” or UP. You believe the gold price will increase before day’s end so you click “CALL” with an investment of $100. You see the payout is indicated as 75% meaning if the option expires at 20:00 today above $1501, you earn $75. If it expires and the price of Gold is at $1485, you have lost. But at least you haven’t lost everything.

You lose only 90% of the investment. At 20:00 you log into your account and see the price of Gold at $1516, because you clicked Call when the price was only $1501, and you know you are in-the-money. You see your account balance increased by another $75.

You have just made 75% on your money and it had nothing to do with how far the market really went up. The market increased by about 1% yet you earned 75%. It really is that simple. In other articles, we will explain the earning differences between trading the actual underlying asset and trading Binary Options. There you can see that it is very worth while to trade Binary Options as it decreases risk levels significantly.

If you think you are ready to trade, check out the brokers we recommend {here

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